Mortgage Rates Are Great, But They Could Be Greater

The world of mortgage rate analysis is both simple and complicated.  On a simple note, rates are near long-term lows and they'll generally continue to follow the broader market for interest rates (which is largely based on US Treasuries, domestically).  On the more complex note, mortgage rates aren't directly tied to Treasuries, don't move frequently throughout the day, and can vary from lender to lender.  Due to those 3 factors, we get days like today where 10yr yields are down significantly (normally a good indication that mortgage rates will be down), yet some lenders are actually offering somewhat higher rates compared to last Friday!  What's up with that?

Generally speaking, the lenders who are worse off today are those who were more aggressively priced on Friday.  Compare today to last Wednesday, and most lenders have dropped by a similar amount.  Even then, the average lender is just slightly lower in rate today, which means we're still operating on the edge of the lowest levels in more than a year. 

The biggest issue--and the one that's most difficult to explain in simple terms--is that mortgages have not been doing a good job of keeping pace with Treasury yields lately.  This has happened for a variety of reasons.  If we could only discuss one overarching reason, it would be that mortgages are based on different bonds than Treasuries.  Although their supply/demand characteristics are usually almost perfectly similar, there are times when that correlation breaks down due to the unique underlying investments (i.e. one is US government debt and the other is consumer mortgage debt that's merely guaranteed to be repaid by the US government).  Notably, there has been increasing chatter regarding the re-privatization of Fannie Mae and Freddie Mac.  If that happens, the aforementioned government guarantee would no longer be in place.  This alone could explain some of the drift seen in mortgages vs Treasuries lately.

Zooming back out to the more simple point of view, suffice it to say that both mortgages and Treasury yields are as low as they have been any time recently, and that a big move higher in one will likely coincide with a big move higher in the other.  Mortgage rates have a bit of an advantage there.  Since they've seen fewer gains on the way down, they have less to lose on the way up.

Loan Originator Perspective

Bond markets had another strong day on Tuesday, moving to their best levels since late 2017.  While MBS (and mortgage rates) aren't keeping pace with treasuries' gains, they're still strengthening.  I see no need to lock loans closing over 30 days out (for now).  Risk averse borrowers who are happy with current pricing may want to lock, presuming they won't become despondent if rates improve further. -Ted Rood, Senior Originator

Today's Most Prevalent Rates

• 30YR FIXED - 4.0-4.125%
• FHA/VA - 4.0%
• 15 YEAR FIXED - 3.875% 
  
• 5 YEAR ARMS -  3.875-4.25% depending on the lender

Ongoing Lock/Float Considerations 

• Early 2019 saw a rapid reevaluation of big-picture trends in rates and in markets in general
  
  
• The Federal Reserve has been a key player, and while they aren't the ones pulling the global economic strings, their response to the economy has helped rates fall more quickly than they otherwise might.
  
  
• Based on the Fed's laundry list of concerns, the bond market (which determines rates) will be watching economic data closely, both at home and abroad.  The stronger the data, the more rates could rise, while weaker data could lead to new long-term lows.  

• Rates discussed refer to the most frequently-quoted, conforming, conventional 30yr fixed rate for top tier borrowers among average to well-priced lenders.  The rates generally assume little-to-no origination or discount except as noted when applicable.  Rates appearing on this page are "effective rates" that take day-to-day changes in upfront costs into consideration.